GDXJ Junior Gold Mining Stocks – Potential False Break Out Trap

by Olivier on May 20, 2010

Gold Miners are now seriously underperforming the price of gold. The potentially dangerous divergence I pointed out in my Gold – HUI Gold Bugs Price Divergence post is slowly starting to be a matter of great concern. Going through my public list I decided to update the annotations of the GDXJ – Market Vectors Junior Gold Miners chart. The recent up move to new 52 week highs is starting to look like a potential trap for traders. It might be a bit too early to draw conclusions but that is not the point. It is a warning signal and the chart’s way to tell us to be cautious buying pullbacks. They might turn out not being the bargain hoped for. That being said Gold is still in an uptrend. The mining stocks are not confirming the move to new all time highs though. If Gold marches higher though they will ultimately have to catch up. Right now confusion reigns supreme and the charts display lots of indecision.

The fact I got stopped out of my last position in what I considered to be one of the mining stocks with huge potential is an additional warning sign. Trades on the long side for resource stocks are not working for now.

GDXJ Market Vectors Junior Gold Miner ETF False Break Out Technical Analysis Price Chart

Up-to-date GDXJ – Market Vectors Junior Gold Miner ETF chart on my public list.

Technical analysis is often misunderstood as being the holy grail to making profits. What is often overlooked is its ability to warn you of impending price moves and its ability to help avoid huge losses. Applying technical analysis and using stop losses are the only way to protect your financial and mental capital. If you want to play the markets you need to stay in the game. This year has been tough so far. Still, I was able to keep my overall losses to a minimum. Not much else I could have asked for. My goal as a trader is still the same:

  • To continue to learn about the markets and price movements
  • To learn from my mistakes in order to avoid repeating them
  • To continually increase discipline
  • To be emotionally detached.

The meaning of things lies not in the things themselves, but in our attitude towards them. – Antoine de Saint-Exupéry

My public list with all my charts can be viewed here:

Bonne nuit!

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